Are there different types of Income Protection Insurance?

In short, yes. Income protection can not only take many names, the definition that accompanies your income insurance can also differ.

Income protection insurance generally has two types of cover you can select; indemnity or agreed value. Indemnity cover is based on up to 75% of your pre-disability income and any benefit you may receive is tax assessable. The drawback to indemnity cover is that you need to provide proof of loss of income at claim time which can create a level of uncertainty around the value of the potential benefit an insurer may end up paying. Based on this, is it usually not recommend that someone who is self-employed take cover under an indemnity product due to the nature of fluctuating income that usually accompanies being self-employed.

By comparison, an agreed value benefit offers certainty as the value of any future claim benefit is agreed upon with the insurer at the time you apply for cover and any benefit payable is not tax assessable – which means less of a headache with calculating and paying taxes. However, this also means that the proportion of income you can cover is less, usually up to 62.5% of your income, which is generally great for those with fluctuating income levels.

No matter what type of income protection benefit you select, it is important to seek professional advice as it is in your best interest to ensure that you understand the amount of any potential benefit you may claim in the future.